A la carte pay television
A la carte pay television (from the French à la carte, "from the menu") refers to a pricing model in which cable and satellite companies allow customers to subscribe only to those channels they select. A la carte pricing contrasts the prevailing practice of bundling channels into packaged subscription tiers.
The term "a la carte" as applied to pay television has at least two meanings. In the strictest sense, the term refers to the ability of subscribers to select and pay for specific shows, such as is afforded on some Internet services like Amazon Instant Video and iTunes. More conventionally, the term implies that subscribers can choose and pay for individual channels, and it is this definition that is usually employed in the discussions about the issue. In North America, cable and satellite companies offer this pricing scheme, but only for a few premium channels such as HBO and Showtime; the other channels, representing the vast majority, remain in bundled tiers.
Internet-based services offered on a subscription basis can also be seen as channels that are available a la carte. With its 50 million subscribers worldwide, Netflix's streaming service established the sector, providing original programming, television series and films for a set monthly fee, with shows available on-demand. In October 2014, HBO and CBS and announced comparable services over the Internet as did Lions Gate in partnership with Tribeca Entertainment.
A la carte pricing in North America has been a proposal, not a practice. While program distributors have experimented with smaller bundled offerings, none has offered a true a la carte service in which subscribers can select the exact mix of channels they want to view. Resistance to the scheme has persisted even during industry downturns. In 2011, for example, a combined loss of 1.2 million subscribers to Comcast and Time Warner Cable prompted rumors that program distributors themselves would push to unbundle at least some of their services. Cable analyst Craig Moffett argued that a modified a la carte model, consisting of smaller programming tiers, was more economically feasible for distributors and customers alike. At the time, Time Warner Cable experimented with such an offering in a limited trial, called TV Essentials. Two years later, channel bundling remained the standard industry practice.
The precedent for distributors bundling channels, rather than offering them a la carte, began shortly after passage of the 1992 Cable Television Consumer Protection and Competition Act, which enabled broadcasters to seek compensation from distributors in exchange for retransmitting a signal. Larger broadcasters negotiated not for higher fees, but for inclusion of their newer, lesser known, non-terrestrial channels. Fox, for example, obtained distribution for FX; NBC for CNBC. Hence bundling has not been just a marketing choice for distributors, but a contractual obligation.
The case for a la carte has centered on cost savings for subscribers. In 2006, Kevin Martin, then chairman of the Federal Communications Commission (FCC) and one of the best known advocates for the pricing scheme, presented a report to Congress arguing that the average consumer would save 13 percent on cable bills if he or she could subscribe only to those channels actually watched. More recently, some researchers have argued that the perceived cost savings of a la carte pricing would be illusory for most subscribers and dramatically reduce revenues for programmers.
Opposition to a la carte programming has come from programmers, program distributors and consumer groups, centering largely on program diversity. When channels are bundled into large subscription tiers, less popular niche channels are more likely to survive because their cost is borne by both viewers and non-viewers, alike. In 2008, the National Congress of Black Women and 14 other groups argued that case in a letter to the Federal Communications Commission, writing that a la carte pricing would "wreak havoc" on programming diversity. Televangelist Jerry Fallwell opposed a la carte pricing for similar reasons, fearing that the pricing model would force Christian broadcasters off the air, although not all religious broadcasters agreed.
In May 2013, U.S. Senator John McCain introduced legislation that would have encouraged, through regulatory incentives, programmers and distributors to offer a la carte services. He cited an FCC survey finding that the cost of expanded basic cable has effectively risen from about $25 a month in 1995 to over $54, greatly exceeding inflation. As predicted at the time by observers and McCain himself, the legislation did not pass.
A December 2013 analysis of the U.S. market by investment bank and asset management firm Needham & Company concluded an a la carte scheme would cut $80 billion to $113 billion of consumer value from the industry, cost at least $45 billion in advertising, and eliminate at least 124 channels and some 1.4 million media-related jobs. The firm based its estimates on the assumption that the average annual operating cost of an entertainment cable channel is $280 million, which would require at least 165,000 viewers to break even. Based on 2012 viewership, that would leave about 56 channels standing. Analyst Laura Martin recommended that the current business model of bundled tiered subscriptions be kept with no changes.
In a May 2014 New York Times column, Josh Barro pointed to academic research concluding that an a la carte system would not benefit customers. A typical subscriber would pay "slightly more on cable under an unbundled system, while watching slightly fewer channels." A 2011 Stanford University study cited by Barro simulated a 49-channel subscription bundle being switched to an la carte scheme. The researchers concluded that subscribers would pay 103.0% more in fees passed on by distributors, while consumer welfare would likely be worse, changing between -5.4% and 0.2%. Part of the reason is efficiency: some distribution costs are fixed whether a distributor provides a few channels or many. If fewer people subscribe, the base subscription rate is likely to go up. In addition, programmers would receive less revenue in carriage fees and advertising revenues for programmers, and would look to its remaining viewers to make up the difference. But some subscribers would benefit from a la carte. They include subscribers who have opted out of bundled channels, but might subscribe to just a few, as well as subscribers with no interest in sports. (Casual sports fans, on the other hand, could pay more.)
By 2013, the outsized cost of sports programming paid by distributors and passed on to subscribers had influenced the debate. The Needham study maintained that the creation of a separate sports tier would reduce industry revenues by $13 billion. But cable pioneer John Malone said that, for subscribers uninterested in television sports, "runaway sports rights" costs amounted to "a high tax". The most pronounced example was the sports network ESPN, whose monthly per- subscriber fee charged to distributors averaged $5.et54, more than four times that of the second most costly national network. According to a New York Times report, many subscribers paid for ESPN through bundled subscriptions, but did not watch it. Of the country's 100 million households, just 1.36 million people viewed ESPN in prime during the second quarter of 2013. ESPN and its parent, Walt Disney Company, called bundling a great value and a force for program diversity, and argued that without bundling, ESPN's monthly fee would rise to $15. ESPN also sought to influence legislation and regulations governing the bundled subscription model. From at least 1999, ESPN hosted receptions for politicians, testified to and lobbied Congress, met with the Federal Communications Commission, and contributed to election campaigns and political action committees.
Regional sports networks sold as part of bundled tiers were also a source of controversy. A notable example was the Time Warner Cable agreement to pay the Los Angeles Dodgers $8.35 billion over 25 years to carry the team's exclusive television outlet, SportsNet LA, with the intent of reselling rights to other regional distributors. The largest, DirectTV, offered to carry the channel on an la carte basis, arguing that SportsNet LA was most expensive of five regional sports networks and that a bundled offering would unfairly burden the company's subscribers. TWC responded that bundled sports channels were an industry standard, one that DirectTV itself adhered to in other markets. The dispute has effectively blacked out Dodgers telecasts to 70% of Southern California households since the start of the 2014 baseball season.
In 2012, the Canadian Radio-television and Telecommunications Commission issued two rulings that would permit la carte services, but not require them. The decisions, which sprang from a long-standing dispute between Bell Media and some of Canada's smaller cable companies, gave Bell the ability to charge customers on a sliding scale: the more channels subscribed to, the lower the per channel cost. In October 2013, Industry Minister James Moore said during a television appearance that Canadians "shouldn't have to pay for bundled television channels they don't watch" and indicated that the country's Conservative government would make it easier for subscribers to purchase channels individually.
Previously, Rogers Communications began offering an a la carte package variant: 86 channels for $20.29 a month, with the ability to add additional channels. The pilot project extended four months, from November 2011 to March 2012.
In India, terrestrial television and free-to-air TV is free with no monthly payments while cable, direct to home (DTH), and IPTV require a monthly payment that varies depending on how many channels a subscriber chooses to pay for. Channels are sold in packages/bouquets/bundles or a la carte. All television service providers are required, by law, to provide a la carte selection of channels. India is the first country in the world to couple a la carte pricing with a price cap. Hathway, a multiple-system operator (MSO), was the first to offer channels on an a la carte basis in India. The service was announced on 3 September 2003.
On 3 September 2007, the Telecom Regulatory Authority of India (TRAI) issued the Telecommunication (Broadcasting and Cable Services) Interconnection (Fourth Amendment) Regulation 2007, coming into force from December 1 of the same year, making it mandatory for all broadcasters to offer channels on an a la carte basis to all DTH operators on a non-discriminatory basis. The regulation states, "All broadcasters will compulsorily offer all their channels on a la carte basis to DTH operators. Additionally, they may also offer bouquets, but they will not compel any DTH operator to include the entire bouquet in any package being offered by DTH operators to their subscribers". Prior to the regulation, only customers in areas covered by the conditional access system (CAS), and the cable operators providing the services, had the option of choosing the channels they want to watch and pay for those alone. TRAI intervened after DTH operators complained that broadcasters were forcing them to carry channels that they did not want. In a revised regulation called the Telecommunication (Broadcasting and Cable) Services (Second) Tariff (Eighth Amendment) Order, 2007, issued by TRAI on 4 October 2007, a revised tariff order with an overall ceiling for cable TV services in non-CAS areas was fixed, and broadcasters were ordered to offer all channels on an a la carte basis to cable operators (MSOs and local cable operators). Like the earlier regulation, concerning DTH operators, this order also took effect on 1 December 2007 and also permitted bouquets of channels to be offered along with a la carte.
Several broadcasters, such as STAR India, Zee Turner, Set Discovery and Sun TV, challenged TRAI's October 4 order in the Telecom Disputes Settlement Appellate Tribunal (TDSAT). On 11 December 2007, TDSAT dismissed the plea to stay the a la carte tariff order for non-CAS areas. TDSAT said that the October 4 tariff order for non-CAS areas is an experiment in the interest of the consumer and should be implemented. On 15 January 2008, TDSAT refused to grant a stay on the appeal challenging TRAI's directive. TDSAT, overruled the broadcasters' objections, and stated that the regulation was perfectly in the public interest and also in the interest of the policy. TDSAT also refused to accept the broadcasters' demand that MSOs should provide names and addresses of their subscribers. TDSAT later set aside TRAI's December 2007 tariff regime. TRAI challenged TDSAT's order in the Supreme Court. On 6 March 2007, the Supreme Court issued an interim order allowing users of cable and CAS to pick their channels without having to accept bouquets as a whole. TRAI argued that if the TDSAT order was not stayed, broadcasters would again club less-popular channels with popular ones and force the service provider and cable operator to take the entire bouquet, with the consumer paying for unwanted channels. The decision brought the December 2007 tariff regime back in force for two weeks, pending formulation of a new tariff mechanism by TRAI. TRAI on 22 July 2010, seeking the Supreme Court's approval to fix a ceiling on the retail tariff charged by local cable operators (LCOs) from consumers in non-CAS areas told the court, "In the analog, non-addressable environment, the authority is of the view that a la carte should not be made mandatory at the wholesale level as technological constraints in any case make it impossible for the benefits of a la carte provisioning to be passed on to subscribers".
In TRAI's, tariff order for 2010, it insisted that for digital addressable systems customers must be given free choice of pay channels, than be forced to pick from a bunch of pre-set bouquet arrangements. TRAI ordered that the change be made by 1 September 2010, with a final deadline of January 2011, if operators needed extra time for technical upgrade. The order stated, "Every service provider providing broadcasting services or cable services to its subscribers using an addressable system shall offer all pay channels to its subscribers on a la carte basis and shall specify the maximum retail price for each pay channel". The order covers all digital addressable systems such as DTH, HITS, IPTV and cable service providers in CAS areas. Prior to the order, pay-channels on digital platforms were not available on a la carte basis. Tata Sky, Airtel digital TV, Videocon d2h and Reliance Digital TV launched a la carte options in January 2011.
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